An internal Wirecard spreadsheet shows that three partner companies contributed half the sales and more than 90 per cent of the profits to the scandal-hit German payments group in 2016 and early 2017.
The file, an excerpt of which was published today by the Financial Times, informed an FT article last month that raised new questions about the accounting at a company that is regarded by many as Europe’s next tech champion.
In response, Markus Braun, chief executive, told analysts and investors on 25 April that the figures in the FT story were not accurate, and the contribution to profits from the three partners was “not significant”.
The company has not responded to subsequent requests from the FT to explain why figures in the spreadsheet should be disregarded. The properties of that document indicated it was created and updated by Kai Oliver Zitzmann, Wirecard’s head of corporate accounting and international reporting.
In the face of these denials and the refusal to explain, the FT has taken the decision to publish an extract of the document.
Titled an “overview” (“übersicht”), Mr Zitzmann’s spreadsheet recorded payment volumes, revenues, costs and profits routed through Wirecard‘s operations in Dubai, Dublin, and Munich from companies known as “acquirers” — industry jargon meaning financial institutions that enable merchants to accept credit card payments.
“In the excel file you see the numbers of the third party acquirers — splitted into the different companies,” Mr Zitzmann said in a 24 July, 2017 email to Edo Kurniawan, Wirecard’s head of international finance, who has since been named as a suspect in a Singapore police investigation into alleged forgery and fraudulent accounting.
Some figures in the file then appeared in a list of “special items” sent 56 minutes later to Stephan von Erffa, Wirecard’s deputy chief financial officer. “As per requested see attached. Let me know if you have further question,” Mr Kurniawan’s email said.
The three partner companies were Al Alam Solutions, a Dubai payment processor with thinly staffed operations in the Emirate, PayEasy Solutions, a Philippine payments business that shares an office with a Manila bus company, and Senjo, based in Singapore.
Al Alam’s offices were empty or staffed by only one or two people on multiple occasions in recent months. The company’s web presence is minimal, and ownership of its website is hidden by a privacy service.
Wirecard has not disclosed a material relationship with these payments companies, nor that it had concentrated financial exposure to such businesses. The company has said it rejects in the strongest possible terms any suggestion its executives have misled the market.
For the first quarter of 2017, Mr Zitzmann’s spreadsheet included monthly data for 33 clients of Al Alam which generated €36.8m of commission, equivalent to 45 per cent of the earnings before interest, tax, depreciation and amortisation reported by Wirecard in the period.
According to the spreadsheet, two Wirecard subsidiaries did substantial business with Al Alam: Wirecard UK & Ireland and CardSystems Middle East.
The limited financial disclosure Wirecard has made available about CardSystems, its largest subsidiary by sales, consists of annual equity and net profit figures, published in German-language documents and not prepared under international accounting standards.
The company has also denied whistleblower claims that Cardsystems’ accounts were not audited in 2016 or 2017. The FT asked Wirecard to identify any local audit firm which prepared or signed off CardSystems financial statements in those years.
It said: “With every annual report, all relevant subsidiaries, including CardSystems, are of course part of our global group audit.”
In 2016 and 2017 CardSystems was based in one of Dubai’s so-called Creative Clusters, governed by Free Zone regulations. Christopher Gunson, partner at the law firm Amereller, said: “Generally any company would be required to submit an auditors report to renew its commercial licence.”
He added: “It’s more of a form over substance exercise. It hardly ever leads to any follow-up.”
Lawyers for Wirecard said the FT’s questions were fuelled by a “number of misunderstandings”. They said in a statement that the group is structured along industry verticals and that customers contract mostly with the group’s four “international service delivery hubs” in Germany, Dubai, Ireland and the US.
It said last year 48 per cent of transaction revenues came via 100 third-party institutions and service providers, of which about 20 are of particular relevance to Wirecard, and CardSystems “has always been fully audited by EY and operates in full compliance with local and international governance rules”.
Lawyers for Wirecard at Herbert Smith Freehills provided a statement in response to FT questions, which it said were fuelled by a “number of misunderstandings”:
“Wirecard’s corporate structure reflects its innovative go-to-market and organisational approach. Wirecard’s sales organisation is structured along industry verticals, notably consumer goods, digital goods as well as travel and mobility. Wirecard’s technology development and operations are structured along product verticals, such as payment acceptance, issuing, analytics, risk management and other value-added services, which are all integrated in Wirecard’s single platform.
“All key operational performance indicators are structured along those verticals and geographical aspects are only of limited relevance. Certain financial metrics are aggregated on pro-forma level for Europe, APAC/MEA and the Americas for reporting purposes. All subsidiaries are fully integrated in this governance approach. The local financial results of a subsidiary are in no way representative of the business performance and overall financial contribution of a regional market to Wirecard’s financials since most costs and revenues will not accrue locally and are hence not reflected in the local books. Customers contract partially with local entities, usually for regulatory reasons, but mostly with international service delivery hubs.
“Wirecard’s four primary global product and service delivery hubs serve customers globally with standardised offerings and are located in Germany (Wirecard Technologies GmbH, Wirecard Acquiring & Issuing GbmH, Wirecard Bank AG), Dubai (Card Systems Middle East FZ LLC and Wirecard Processing Dubai FZ LLC), Ireland (Wirecard Payment Solutions Holdings Ltd., Wirecard UK & Ireland Ltd.) and starting in 2017 Wirecard’s subsidiary in the US (Wirecard North America Inc). Issuing is mostly operated out of Germany, Dubai and the United States while payment acceptance services are mostly operated out of Germany, Ireland and Dubai. Sales, in accordance with industry vertical focus areas, and general administrative costs are distributed globally.
“Software development is mostly conducted in Germany, Slovakia, Indonesia, and (with smaller teams) in Singapore, Austria, Malaysia, Canada, New Zealand and India. About 20 per cent of value added originates from highly localised value propositions. Such products and services are mostly developed and delivered by the local subsidiary directly. As and when such value propositions become relevant outside a narrow geographical market, development and operations for such products and services get consolidated into Wirecard’s global product and service delivery hubs.
“In FY2018, about 52 per cent of transaction volumes, mostly of European origin, were processed via financial institution licenses held by subsidiaries of Wirecard. The residual approximately 48 per cent relate to more than 100,000 merchants and were processed via more than 100 third-party financial institutions and payment acceptance service providers of which about 20 are of particular relevance with 8 so-called BIN sponsors and 12 other acceptance partners. Wirecard’s ability to serve customers globally, also outside of the licence areas of financial institutions owned by Wirecard, is one of Wirecard’s key differentiators in the market. Besides APAC and MEA also the United States, Canada and LA TAM are regions where Wirecard is currently predominantly relying on third party licences for acceptance and issuing value propositions.
“Wirecard’s subsidiary Card Systems Middle East FZ LLC has always been fully audited by EY and operates in full compliance with local and international governance rules. All information related to past acquisitions by Wirecard, whether in Asia or in other geographies, can be found on our client’s website.”